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Peter Schiff: Why Own US Stocks?

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Stock markets had another bad day Tuesday. The Dow Jones fell over 400 points as the 10-year Treasury yield broke through 3%. Several “marquee” companies warned of higher costs, including Google-parent Alphabet and Caterpillar.

In his latest podcast, Peter Schiff said he thinks the correction is over.

Not the downward move. That is not the correction. This is the bear market. The upward move was the correction. It was the first correction in this young bear market that technically is not a bear market yet because we’re not down 20%. But that’s only a matter of time before the people call the bear market what it is.”

Everybody has been counting on strong earnings to keep the stock market marching higher. But that optimism is starting to evaporate as costs and interest rates rise. And as Peter has been saying on his podcast in recent weeks, the earnings aren’t really relevant because they are already baked into the cake. Much of the stock market rise since Pres. Trump took office was based on this optimism.

The markets were priced for perfection, and what I said is they’re probably not going to get it. And even if they get it, so what? Because it’s already been factored in.”

Ironically, Caterpillar and Alphabet actually beat their earnings estimates. Yet both stocks still tanked. After an initial pop of 4% on the news, Caterpillar plunged over 6%.

A 10% drop on better than expected earnings. So, what does that tell you? If stocks can’t go up, even if they beat the earnings, well what happens if they don’t beat the earnings? Then they get crushed.”

Peter asks a pretty poignant question: Why own stocks?

They’re going to go down no matter what. It’s just a question of whether they go down a little or they do down a lot. So, this should be taking a lot of the wind out of the sail of the stock market bulls, who were hanging their hats on better earnings, because even if we get the better earnings, it doesn’t mean the stock prices are going up.”

Peter also touched on the bond market, noting that the 10-year Treasury pushed above 3%, even with stocks falling. But the mainstream remains unconcerned about rising interest rates because they say they are going up for “the right reasons.”

The right reason supposedly is they’re going up because the economy is so strong that the rates are going up. Well, how do they know that that’s why rates are going up? I mean, maybe they’re going up because inflation is going up, and is that a good thing? Maybe they’re going up because the budget deficits are skyrocketing. Maybe they’re going up because the Fed is threatening to do quantitative tightening. Maybe they are going up because people are losing confidence in the US dollar or the creditworthiness of the United States. There could be a lot of bad reasons that rates are going up.”

In fact, as we reported today, there are signs that inflation is indeed hotter than the mainstream seems to think.

But let’s say interest rates are going up for the “right reasons.” Does that even matter? The fact is they are up, and we have to pay those higher rates. That higher interest cost is going to hit the economy.

So, it doesn’t matter if rates are up for the right or wrong reasons. The fact that matters is that they’re up and we can’t afford to pay when the economy is so over-leveraged and so indebted.”

The mainstream brushes this off saying, “Three percent is still historically low, so everything is OK.”

Yeah, historically 3% is low. But historically we don’t have a $21 trillion national debt. Historically, we haven’t had corporations this levered up from buybacks. Historically, we don’t have so many people in these rock-bottom mortgages with sky-high real estate valuations.”

The world is drowning in debt and interest rates are going up. How can this not end in a disaster? Peter said this is a basically a repeat performance of the run-up to 2007-2008.

This is the same thing they’re missing now. They are ratcheting up interest rates in an environment where they have levered everybody up to the hilt when rates were so low, and they think, ‘Nope. Nothing to worry about. No sign of anything wrong.’ It’s exactly what happened before except the signs are bigger and the problem is bigger, but their blindness is the same.”

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